SCHP vs TIPZ

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Gecko10x
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SCHP vs TIPZ

Post by Gecko10x »

Can someone please explain the differences between these two funds, in layman's terms? Their yields seem rather significantly different compared to their construction (SEC yields 10.43% vs 11.85%), and I'm not sure I understand why.

SCHP (Schwab intermediate TIPS)
TIPZ (Pimco intermediate TIPS)

They have similar duration (7.52 vs 8.14) and maturity (7.98 vs 8.83 - maybe this isn't "similar"...) I'm not sure I fully understand the weighted coupon value (0.68 vs 1.01).
Looking at the duration analysis, SCHP seems to be more evenly spread out. TIPZ is has more clustered in the middle and less on the ends.

Practically speaking, do you think one is better than the other? What are the implications of the duration weights?

Edited to add: TIPZ is a fair bit more expensive at 0.20% ER. SCHP is 0.05%
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vineviz
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Re: SCHP vs TIPZ

Post by vineviz »

Gecko10x wrote: Fri May 13, 2022 3:26 pm Practically speaking, do you think one is better than the other? What are the implications of the duration weights?
The two funds follow slightly different versions of a broad TIPS index, but there is no material difference between the two portfolios.

The fact that SCHP is cheaper is all the reason I'd need to prefer it over TIPZ.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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quisp65
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Re: SCHP vs TIPZ

Post by quisp65 »

I started favoring Vanguard intermediate TIPS fund over SCHP because they show the fund to have 15-16% (non-inflation) treasuries. Not sure about TIPZ.

https://www.schwab.wallst.com/schwab/Pr ... ymbol=SCHP
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vineviz
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Re: SCHP vs TIPZ

Post by vineviz »

quisp65 wrote: Sat May 14, 2022 8:16 am I started favoring Vanguard intermediate TIPS fund over SCHP because they show the fund to have 15-16% (non-inflation) treasuries. Not sure about TIPZ.
This is a misinterpretation: apart from a tiny amount of cash, SCHP only owns TIPS.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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quisp65
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Re: SCHP vs TIPZ

Post by quisp65 »

vineviz wrote: Sat May 14, 2022 8:21 am
quisp65 wrote: Sat May 14, 2022 8:16 am I started favoring Vanguard intermediate TIPS fund over SCHP because they show the fund to have 15-16% (non-inflation) treasuries. Not sure about TIPZ.
This is a misinterpretation: apart from a tiny amount of cash, SCHP only owns TIPS.
Good to know. Their graph showing 16% is confusing but if you look at the individual treasuries listed I only see TIPS so I assume you are correct.
hudson
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Re: SCHP vs TIPZ

Post by hudson »

Gecko10x wrote: Fri May 13, 2022 3:26 pm Can someone please explain the differences between these two funds, in layman's terms?
Edited to add: TIPZ is a fair bit more expensive at 0.20% ER. SCHP is 0.05%
I see your edit.
So if you invest $100K
SCHP costs you $50 a year
TIPZ cost you $200 a year
If you buy individual TIPS, that's $0 per year.
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grabiner
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Re: SCHP vs TIPZ

Post by grabiner »

Gecko10x wrote: Fri May 13, 2022 3:26 pm Can someone please explain the differences between these two funds, in layman's terms? Their yields seem rather significantly different compared to their construction (SEC yields 10.43% vs 11.85%), and I'm not sure I understand why.

SCHP (Schwab intermediate TIPS)
TIPZ (Pimco intermediate TIPS)

They have similar duration (7.52 vs 8.14) and maturity (7.98 vs 8.83 - maybe this isn't "similar"...) I'm not sure I fully understand the weighted coupon value (0.68 vs 1.01).
The coupon value depends on the yield of a bond when it was issued; it is not directly relevant to the return, other than that a bond with higher coupons has a shorter duration.

Suppose that ten-year Bond A, issued for $1000, pays a $10 coupon every six months, and is currently worth $1000. Ten-year Bond B, also issued for $1000, pays a $15 coupon every six months; this might happen if Bond B was issued ten years ago as a 20-year bond with a 3% yield. Bond B needs to be worth $1090 to have the same 2% yield to maturity as Bond A. At that price, Bond B has a coupon rate of 2.75%, versus the original 3% rate.

As an investor, you don't care much about Bond A versus Bond B (except for the tax consequence of the distributions); SEC yield on the wiki shows that these two bonds have almost the same return regardless of what happens to interest rates.
Wiki David Grabiner
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